Once a zero interest rate has been reached, even though continuing to increase the money supply will not lower the interest rate, the process can stimulate the economy.

Question

Quizplus · Accepted Answer

Even though increasing the money supply will not lower the interest rate further, it can still stimulate the economy by spurring investment and consumption. This is because low interest rates make borrowing cheaper, which can encourage businesses and individuals to invest and spend more. Additionally, increasing the money supply can lead to inflation, which can help boost economic growth by making exports more competitive and reducing the real value of debt. However, increasing the money supply too much can also lead to inflation spiraling out of control, causing economic instability.

Once a Zero Interest Rate Has Been Reached, Even Though